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Why Eastman Chemical is a Great Stock for Value Investors?

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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn't want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let's put Eastman Chemical CompanyEMN stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock's current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Eastman Chemical has a trailing twelve months PE ratio of 11.00, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.61. If we focus on the long-term PE trend, Eastman Chemical's current PE level puts it below its midpoint over the past five years.

Further, the stock's PE also compares favorably with the Zacks classified Chemical - Diversified industry's's trailing twelve months PE ratio, which stands at 16.24. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Eastman Chemical has a forward PE ratio (price relative to this year's earnings) of just 10.34, so it is fair to say that a slightly more value-oriented path may be ahead for Eastman Chemical stock in the near term too.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock's price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Eastman Chemical has a P/S ratio of about 1.23. This is a bit lower than the S&P 500 average, which comes in at 2.93 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.

Broad Value Outlook

In aggregate, Eastman Chemical currently has a Zacks Value Style Score of 'A', putting it into the top 20% of all stocks we cover from this look. This makes Eastman Chemical a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Eastman Chemical is just 1.34, a level that is lower than the industry average of 1.88. The PEG ratio is a modified PE ratio that takes into account the stock's earnings growth rate. Additionally, its P/CF ratio (another great indicator of value) comes in at 8.12, which is better than the industry average of 9.19. Clearly, EMN is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Eastman Chemical might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of 'D' and a Momentum score of 'B'. This gives EMN a Zacks VGM score-or its overarching fundamental grade-of 'B'. (You can read more about the Zacks Style Scores here >> )

Meanwhile, the company's recent earnings estimates have been mixed at best. The current quarter has seen no estimates go higher in the past thirty days compared to none lower, while the next year estimate has seen one upward and no downward revision in the same time period.

This has had just a small impact on the consensus estimate though as the current quarter consensus estimate has fallen by 0.7% in the past one month, while the next year estimate has inched higher by 0.1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

SUN HYDRAULICS Price and Consensus

SUN HYDRAULICS Price and Consensus | SUN HYDRAULICS Quote

This mixed trend indicates that while the stock's growth story is intact over the medium term, analysts have some apprehensions about the stock in the immediate future.

Bottom Line

Eastman Chemical is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite having a Zacks Rank #3 (Hold), the stock belongs to an industry which is ranked among the Top 25%, which indicates that broader factors are favorable for the company. Further, the Zacks categorized Chemical - Diversified industry has clearly outperformed the broader market, in the last one year, as you can see below:

So, it might pay for value investors to delve deeper into the company's prospects, as fundamentals indicate that this stock could be a compelling pick.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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